Wall Street eyes August jobs data this week

NEW YORK  All the data that Wall Street has seen lately seems to be pointing to a dual economy, one in which businesses are generally faring better than consumers. And reports coming out this week will indicate whether that trend is continuing.

Evidence of this divergent economy keeps building  the average consumer is suffering, but business spending, particularly abroad, appears to be keeping the U.S. economy from sinking severely, even as the financial sector continues to struggle.

"Are businesses still buying? It looks like the answer is yes," said Kim Caughey, equity research analyst at Fort Pitt Capital Group. Companies are increasingly looking for cheaper prices, she said, but "demand is still there."

How well businesses are doing is expected to be gleaned from the Institute for Supply Management. The trade group of purchasing executives is forecast to report that the manufacturing and non-manufacturing sectors saw virtually flat activity in August compared to July, according to the median estimate of economists polled by Thomson Financial/IFR.

Considering that both sectors have seen severe contraction over the past year, flat reports or even slightly higher than expected activity will be considered upbeat on the Street.

Perhaps the key economic report this week will be Friday's Labor Department assessment of employment during August. It will indicate how companies are doing, but also give clues about consumers, simply because when Americans are working, they're in a better position to feed economic growth.

Economists surveyed by Thomson/IFR expect the economy to have lost jobs for the eighth straight month, with employers having cut 75,000 positions and bringing the cumulative jobs lost so far this year above 500,000.

The market also anticipates another uptick in the unemployment rate, which hit a four-year high of 5.7 percent in July. Economists predict an increase to 5.8 percent.

Last week, the Dow Jones industrial average finished the week down 0.73 percent, the S&P 500 lost 0.73 percent and the Nasdaq tumbled 1.95 percent.

With Hurricane Gustav on a track toward the Gulf Coast, many investors are worried that oil prices could shoot higher. The uncertain fate of troubled mortgage financiers Fannie Mae and Freddie Mac has also kept investors on edge.

Despite all the uncertainty on Wall Street over oil, consumers and the financial sector, there are signs that the economy is holding up.

The Commerce Department said last week that gross domestic product rose by an estimated 3.3 percent during the second quarter  much higher than the market expected. Also, the department's report on July orders for big-ticket manufactured goods came in much stronger than forecast, jumping by 1.3 percent.

The growth was driven mostly by businesses and other countries  the rise in durable goods orders was due in large part to a gain in demand for commercial aircraft, while the largest factor in the GDP increase was the strong sales of exports.

"We're moving from a consumer-driven economy to one being more led by exports," said Robert Baur, chief global economist for Principal Global Investors. He said consumers' contribution to gross domestic product might be peaking, after rising during the 1980s and 1990s from less than 65 percent to 70 percent.